Landcadia Holdings II (NASDAQ:LCA) signed a merger agreement with Golden Nugget Online Gaming on June 29. The deal should close soon, despite some opposition from LCA stock holders and the fact that a date for the shareholder vote has not yet been set.
Post closing, the combined company will traded on NASDAQ with the ticker “GNOG”. The merger and new trading symbol will also likely cause the stock to skyrocket. Why? For one, GNOG will receive $150 million in debt paydown and have at least $80 million in cash to work with. That will strengthen its ongoing balance sheet.
In my last article on LCA stock, I wrote a forecast that the company would be worth much more. I suggested that based on its comparable value would be worth twice today’s price.
For example, Golden Nugget Online might expect that it will experience an uplift in its stock price after the merger, just like DraftKings (NASDAQ:DKNG).
That stock started out as a special purpose acquisition company (SPAC). But once its reverse merger closed, the newly named DKNG stock doubled from the period when it was announced.
By the way, this deal was supposed to have closed in the third quarter. I think I know why it hasn’t named a date yet. On Sept. 22, the company made an interesting 8-K filing with the SEC. It showed that there were some last-minute negotiations with the sponsor and Golden Nugget’s owner, Tilman J. Fertitta.
Fertitta will be the controlling shareholder of the merged company. Landcadia wanted to negotiate one further change before that happens.
An amendment was made to the purchase agreement to limit Mr. Fertitta’s supervoting control over the company. That would occur only if he or his interests end up having less than a 30% economic stake in the company.
This is a good change. It protects the GNOG shareholders from a scenario where Fertitta sells down his stake and yet can still control the board.
It also implies that Landcadia believes LCA stock will shoot up after the merger. They foresaw this scenario developing with a bad outcome. In effect, this is a bullish sign for the stock.
DraftKings Recent Guidance
On Oct. 5, DraftKings provided guidance about its Q3 results that might have implications for Golden Nugget Online. Although its revenue was in line with guidance, the company’s profit margins are likely to be lower. That implies that it lost a number of major online sporting bets.
It could be that Golden Nugget may have had the same betting experience. However, keep in mind, as I pointed out last month, that Golden Nugget has been much more profitable than DraftKings.
What To Expect With LCA Stock
Investors can expect right after the merger closes major brokerages will likely publish their forecasts for GNOG stock. That is almost certainly a bullish catalyst for investors in LCA stock prior to the merger.
Keep in mind that most firms are not in a black-out period as they normally would be in the normal IPO process. A SPAC merger is not a qualifying event that mandates such a blackout unless the company is raising PIPE-related (private investment in public equity) capital for the merger.
Nevertheless, it probably doesn’t help LCA stock that DraftKings recently decided to sell more shares. Some of those shares in this secondary offering are from existing shareholders. Markets don’t like to see this. This could have a dampening effect on GNOG stock’s prospects after the merger closes.
But don’t give up hope just yet. Things should look much better for LCA stock (i.e., GNOG stock) after the merger.
In the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
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